The scenario fits Money Laundering activity.

• Musah is given huge cash to buy his goods by his brother
• Musah’s brother does not have bank account in Ghana
• The proceeds of the transaction is not paid to his brother in Ghana, but paid into his account in foreign country.
• Though we are not sure how his brother get his money, the modus oprandi, fit money laundering.

Expectation of the risk format
In Money Laundering,

• There’s placement of illegal funds into the financial system. Here huge cash is given to Musah to buy goods and sell outside Ghana.
• Layering-Passing the money through a number of transactions, selling the good outside the country which is engagement of economic activity
• Integration-Integrating the proceeds into legitimate economy by banking in other countries.

Actions to be taken by the auditor
The auditor is then exposed to money laundering activity

• The auditor has an obligation to know the source of the money being given by Musah’s brother.
• The auditor must perform due diligence on the customer and the brother to confirm the activity of the brother.
•  If the suspicion is confirmed, the matter should be reported to the authorities.
• The auditor should avoid tipping of the client during his investigation to confirm the suspicion.

Did the auditor properly consider the following points before planning the audit engagement:

• Matters, such as applicable cost accounting orders relevant to the industry, audit of cost account rules, cost accounting practices, economic situations, laws, government regulations, and technological vicissitudes, which affect the industry?
• Matters having impact on entity’s business such as organization, types of products and services?
• Approved suitable level of knowledge of clients business and accounting system by documenting into working papers.
• Had an introductory meeting with the client key official to have detailed knowledge of the business and industry. And has the major issues, if any pointed out in the meeting were properly recorded and communicated to the client well before time?
• Implement the audit planned in planning the nature timing and extend other audit procedures?
• Attained and documented proper understanding of the internal audit functions based upon the involvement and collaboration of the internal audit
• Acquire adequate knowledge of the internal control structure to plan the audit and reflect to place expected reliance on internal cost accounting controls and appraised the nature, time and level of tests of controls to be performed.
• In case it became necessary to have discussions to make significant decisions, whether the results of such discussions documented in the audit working papers? In case the work papers showed client’s information technological risks, the impact on audit and the engagement team’s valuation of whether to include Information Technology Audit specialist?
• Assessed the quality of the performance of audit team in planning?
• Signed all procedures called for in the audit programs?

• Acquiring an appropriate understanding of the nature of the client’s business, the complexity of its operations, the specific requirements of the engagement and the purpose, nature and scope of the work to be performed.
• Acquiring knowledge of relevant industries or subject matters.
• Possessing or obtaining experience with relevant regulatory or reporting requirements.
• Assigning sufficient staff with the necessary competencies.
• Using experts where necessary.
• Agreeing on a realistic time frame for the performance of the engagement.
• Complying with quality control policies and procedures designed to provide reasonable assurance that specific engagements are accepted only when they can be performed competently.

• Staff membership rates at Ablordey – self-interest threat
  Such a benefit could cause a self-interest threat to the audit, because the recipients may not want to lose their benefit, and therefore be biased in their audit work or not seek adjustments where there are material issues in the financial statements.
• Partner invited to sit on the board – familiarity threat
  If the partner were to sit on the board of directors, there is a risk that the partner could lose their audit objectivity as they may start identifying too closely with the company and its other directors. There is also a risk that the audit partner may start taking management responsibility at Ablordey Co.
• Assurance re insurance claim – advocacy threat
  Audit firms must always ensure that accepting other services does not impact on audit objectivity, whether due to the amount of fees relating to the service or as a result of the nature of the service itself.
• Conflict of interest
  Adjaye-Gyamfi &Co has been invited to tender for an audit which will involve Ablordey’s major competitor, Gyms Ltd. It can be appropriate for audit firms to audit competitors, but the clients involved might feel that there is a threat to client confidentiality and may prefer to seek other auditors in such a situation

Self-interest threat

• Auditors are not allowed to accept such benefits unless their value is trivial and inconsequential. In this case, the value of a reduced membership of a spa is unlikely to be trivial and inconsequential to audit staff members and therefore Adjaye-Gyamfi &Co should reject this offer.

Familiarity threat

• Auditors are prohibited by the Code of Ethics from acting as a director for their clients. You should explain this to the Managing Director and politely decline the invitation.

Advocacy threat

• The partners should discover more about the size and nature of this engagement to determine whether it will affect Independence. In particular they should determine whether such an engagement would put the firm in the position of advocating Ablordey’s position to the insurance firm, as this could cause an insurmountable barrier to independence. They should also monitor the level of fee income this would earn Adjaye-Gyamfi &Co from all work performed for Ablordey Co to ensure it does not cause a self-interest threat.

Conflict of Interest

• Adjaye-Gyamfi &Co should therefore disclose to Ablordey that they are in the process of tendering for the audit of a competitor. If either Ablordey Co or Gyms Ltd is unhappy with this situation then Adjaye-Gyamfi &Co will need to decide which audit they want to secure If Adjaye-Gyamfi & Co performs both audits, they must ensure that they use separate audit partners and teams and set up “Chinese walls” to maintain confidentiality.

• This event occurred before the period end and so must be fully reflected in the financial statements for the year ended 31 March 2019.
• The explosion will mean that the property and other assets that were affected are probably impaired in value and this impairment will need to be quantified and reflected in the financial statements (IAS 36).
• It has also created a potential liability to the owners of the other businesses who claim to have been affected. This may need to be quantified and disclosed in the financial statements although there is currently so much uncertainty in this regard that disclosure may not be required. (IAS 37)
• There is also the possibility of an off-setting contingent asset in the form of the potential for an insurance claim. It is unlikely, however, that this could be seen as virtually certain at this point and so it will not be accrued in the financial statements. It may, however, be noted depending on how satisfied the company is that it will be received.       (4 points for 4 marks)
  Audit evidence to be documented
• Details of the explosion and such reports about it as may exist e.g. to the Health and Safety Authority, Environmental Protection Agency, to the Insurers etc.
• Preliminary reports from the surveyors and structural engineers.
• All correspondence with the insurance company including the insurance policy and evidence that it has been paid up to date.
• The notification of claim from the other business owners and copies of any legal correspondence with them.
• Minutes of board meetings at which the explosion was discussed. In particular, the cause will need to be established to eliminate (or mitigate) the susceptibility of the company to a recurrence.     (4 points for 4 marks)

• Materiality: The matter under consideration is clearly material. The cost of the property acquired is almost 8.9% of total net assets.
• The risk of material misstatement relates to the carrying value of property plant and equipment and charges/credits to Statement of Profit or Loss or other Comprehensive Income.
• The property is incorrectly classified as “held for resale”. IFRS 5 Paragraph 7 states that in order to qualify as “held-for-sale” an asset “must be available for immediate sale in its present condition”. The work is evidently continuing as at 28-2-2019 and so the asset should not be classified as held for sale. It should now be reclassified as property, plant and equipment.
• therefore follows that the gain of GH¢1.56 million should not have been recorded and that the asset should have been depreciated for the year
• It may be inappropriate to expense the cost of the so-called repairs under “repairs and maintenance” as they may be more in the nature of capital expenditure especially considering that the purpose is to ready the property for resale.  (4 points for 4 marks)
  Audit evidence expected to be available would be as follows:
• Contact of purchase (invoice) executed in April 2018.
• Evidence of payment being made for assets (bank transfer, bank statement or the like)
• Evidence of making the premises ready for occupation by staff and evidence of staff subsequently
• Moving out. (for example, invoices paid to companies for relocating equipment etc)
• Minutes of meetings authorising purchase and subsequent resale of property.
• Invoices and other evidence in respect of repairs and maintenance expenses.      (4 points for 4 marks)

• This would appear to be a material transaction representing, as it does, nearly 6.9% of the total assets of Abuakwa Ltd.
• Unless there are any unusual circumstances not mentioned in this case study, a holding of 53% would imply that Abuakwa now has control of Tanoso Ltd and so it should be treated as a subsidiary.
• Neither of the reasons for non-consolidation put forward by the Group finance Director can be considered valid. The only possible valid reason for non-consolidation would be if the purchase was completed with the intention of resale and if the control was, therefore, intended to be temporary.
• In the circumstances, therefore, the entries made in respect of the equity accounting should be reversed and Tanoso Ltd should be consolidated into the Group financial Statements.  (2 points for 2 marks)
  Audit evidence expected to be available would be as follows:
• Evidence of the purchase of, and payment for, shares in January 2019.
• Board minutes authorising the purchase, together with rationale for purchase (to confirm that the acquisition is not temporary)
• Documents such as share register and company search from regulatory authorities confirming Abuakwa as majority shareholder.
• Working papers showing the entries relating to the purchase using the equity method and, subsequently
•  the acquisition method (e.g fair Value and goodwill calculations as required by IFRS 10 and IFRS 13)
• Organisations charts or other documentation showing how control is exercised over Tanoso on a day-to-day or contrary evidence if it is claimed that it is not so controlled.      (2 points for 2 marks)

The audit opinion will be a qualified opinion. The issue at stake is material but not pervasive. Management is in disagreement with the auditor in the adoption of lower of cost and net realisable value in the valuation of inventories.

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF YAWA COMPANY LIMITED FOR THE YEAR ENDED 31ST DECEMBER 2017
Report on the audit of the financial statements

Qualified opinion
We have audited the financial statements of Yawa company limited which comprise the statement of financial position as at 31st December, 2017 and the statement of comprehension income, statement of changes in equity and statement of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, except for the matter stated in the basis of qualified opinion, the accompanying financial statements give a true and fair of the financial position of Yawa company limited as at 31st December 2017 and of its financial performance and its cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and in the manner required by the companies Act 1963, Act 179.       (4 marks)

Management Responsibility
The Board of Directors are responsible for the preparation and fair presentation of the financial statements in accordance with the International Financial Reporting Standards and in the manner required by the companies Act 1963, Act 179 and for such internal control the board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatements whether due to fraud or error.
In preparing the financial statements the Board of Directors is responsible for assessing the company’s ability to continue as a going concern, disclosing as applicable, matter related to going concern and using the going concern basis of accounting unless the Board of Directors either intend to liquidate the company or the cease operations, or have no realistic alternative but to do so. The Board of Directors is also responsible for overseeing the company’s financial reporting process.   (2 marks)

Auditor’s Responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISA, s will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if individually or in the aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercised professional judgement and maintained professionalism throughout the audit.    (2 marks)

• Financial due diligence (a review of the financial position and obligations of a target to identify such matters as covenants and contingent obligations)
• Operational and IT due diligence (extent of operational and IT risks, including quality of system, associated with a target business).
• People due diligence (key staff positions under the new structure, contract termination costs and cost of integration).
• Regulatory due diligence (review of the target’s level of compliance with relevant regulation)
• Environmental due diligence (environmental. Health and safety and social issues in a target)

• Structure, including how the target is owned and constituted and what changes will be necessary.
• Financial health, based on a detailed examination of past financial statements and an analysis of the existing asset base.
• Credibility of the owners, directors and senior managers, including validation of the career histories of all the main players in the business.
• Future potential, reflected in the strengths of its products or services and the probability of earnings growth over the medium to long term
• Assessment of the risk to the acquiring business, in terms of their markets, strategy and likely future events.
• The business plan, in terms of how realistic it is, how solid the assumptions used are and how well it conveys the potential.

Mandatory roles and responsibilities of Audit Committees
The audit committee shall ensure that the head of the covered entity.

• Pursues the implementation of recommendation contained in.
  a. Internal Audit reports
  b. Parliament decisions on the Auditor-Generals report
  c. Auditor-General management letter
  d. The report on internal monitoring unit in the covered entity particularly in relation to financial matters raised; and
  e. Any other report the principal account holder shall require.
• Prepares an annual statement showing the status of implementation of recommendations contained in:
  a. Internal audit reports
  b. Parliament’s decision on the auditor – General’s report.
  c. Auditor- General’s management letter
  d. The report of internal monitoring unit the covered entity concerned particularly in relation to financial matters raised
  e. Any other report the minister shall require
• An annual statement required under the above shall;
  a. Indicate the remedial action taken or proposed to be taken to avoid or minimise the recurrence of an undesirable feature in the accounts and operations of a covered entity.
  b. Indicate the period for the completion of the remedial action: and
  c. Be endorsed by the relevant sector minister and forwarded to the minister of finance, parliament and the office of the president and the Auditor-General within six months after the end of each financial year.

Advisory Roles and Responsibilities.

• Providing advice on sound, transparent and reliable financial management;
• Ensuring the risk management process is comprehensive and effective;
• Helping achieve organizational-wide strong and effective internal controls in the covered entity
• Reviewing corporate policies relating to compliance with laws, regulations, ethnics, conflict of interest, investigation of misconduct and fraud.
• Reviewing current and pending corporate governance-related litigation or regulatory proceedings to which the covered entity is a party.
• Ensuring the internal auditor access to the audit committee and encouraging communications beyond scheduled committee meetings.
• Reviewing internal audit plans, internal audit charters, risk (including fiscal risk) assessment reports.
• Ensuring the development, approval and update of the code of conduct. The committee should also ensure that all employees receive the code of conduct understand it and obtain appropriate training regarding it.
• Follow up on significant issues investigations and disciplinary actions.
• Collaboration with the internal audit agency to initiate investigation into matters involving fraud or misuse of public funds by the principal spending officer.
• Reviewing audit reports for assurance on efficiency, effectiveness and economy in the administration of programmes and operations of the covered entity.

Governance Processes
The objectives of the governance processes are the following:

• To ensure that the organization is able to achieve its mission
• To ensure the right strategic direction of the organization
• To ensure that the operation of the entity will be carried out in compliance with the laws and regulations and internal systems and procedures
• To ensure the stability and growth of the entity
• To protect the interest of the stakeholders
• To prevent fraud and other malfeasance in the entity
• To safeguard the assets of the entity and help to preserve the environment
• To ensure effective organizational performance and accountability
• To ensure smooth information flow and proper risk management
• To co-ordinate the activities and communication of information among the board,
• To establish and monitor whether controls and standards are working.
  Audit work
• Evaluation of the design, implementation and effectiveness of organization’s ethics-related objectives, programmes and activities
• Assessing whether the information technology governance of the organization supports the organization strategies and objectives

Risk management
Objectives to be assessed in risk management are ensuring that:

• risk procedures are in place
• Strategies are in place and are working effectively.
• Reliability and integrity of financial and operational information
• Effectiveness and efficiency of operations
• Safeguarding assets
• Compliance with the Laws, regulations, and contracts
  Audit work:
• Identifying and evaluating significant exposure to risk management and control system.
• Monitor and evaluate the effectiveness of the organization’s risk management system
• Suggest improvement of the risk management systems.

• In view of the uncertainties in recognising and measuring environmental liabilities, typically relating to the timing of clean up, the technology available or possible new legislation, the auditor needs to exercise particular care in assessing the risk of a material misstatement or omission in the financial statements.
• Where environmental matters may be a significant source of risk, an internal control system would not be effective unless it covered items giving rise to environmental risk.
• Whilst management is responsible for all internal controls to safeguard the shareholders’ investment and the company’s assets, the auditor is only concerned with those environmental controls that are considered relevant to the audit of the financial statements.
• Auditors carry out their work recognising that non-compliance with laws or regulations may materially affect the financial statements. In view of the growing body of environment law, the auditor needs to obtain a general understanding of these laws and regulations relevant to the business, including those that are specific to an industry sector.
• There are a number of difficulties in recognising and measuring the financial effects of environmental matters in the financial statements, all of which may have implications for the auditor.
• Where management engages an expert to provide technical advice to assist in developing estimates and disclosures in the financial statements relating to environmental matters, the auditor should consider the adequacy of such work, as well as the expert’s competence and objectivity.
• The auditors should also consider any going concern issues that could arise on account of environmental challenges.      (Any 3 points)

* Planning the audit
* Performing Substantive Procedures
* Carrying a review and reporting

• During the Planning stage, the auditor needs to obtain knowledge of the business to determine how the company’s operation impact the environment and the nature of laws and regulations which the company has to comply with in its operations.
  The auditor will have to carry out inherent risk assessment to determine which environmental factors can translate into material misstatement in the financial statements and can affect the going concern of the entity.
• During Substantive procedures, the auditor will gather appropriate and sufficient evidence to ensure the correct treatment of the following in the financial statements;
  *Provisions- for site restoration, fines and compensation
  *Contingent liabilities in relation to pending legal action
  *Asset values- issues that may impact on impairment or purchase goodwill and products.
  *Capital/Revenue expenditure- cost of cleanup or meeting legal standards
  *Development cost-new products
  *Going concern issues
• At the review stage of the audit, the auditor will take into account environmental issues to determine whether management use of going concern basis is reasonable and acceptable to determine the type of opinion to issue.